More than Overhead: Making an Informed Decision on Charitable Giving

Canadians are a generous bunch. Approximately 24 million Canadians collectively donate billions of dollars to charities close to their hearts (in 2010, the amount donated added up to $10.6 billion).

This spirit of giving intensifies as we head into the holiday season, and toward the end of the calendar (and tax) year. This year, a variety of organizations have banded together to promote December 3rd as “Giving Tuesday”. In the same way that Black Friday and Cyber Monday are intended to signal the beginning of holiday season gift-purchasing, Giving Tuesday is intended to signal the “opening day of the giving season”.

Whether Giving Tuesday inspires Canadians expand on their current charitable giving or to give for the first time remains to be seen, but it does shine a light on the many charities that rely on donations to support their work. When a new donor or a seasoned giver decides to make a charitable gift, the decision of which charity to give to is made with a variety of considerations.

How much of the donation goes towards overhead is one of many factors, but it is one that has been the subject of much recent debate in the charitable sector. This past June, a letter entitled The Overhead Myth was co-authored by three American charity-ranking organizations. The letter challenges the notion that overhead costs and ratios are an effective means of evaluating charities (Click here, for the movement it has spawned). The letter reads:

In most cases focusing on overhead without considering other critical dimensions of a charity’s financial and organizational performance does more damage than good.

In fact, many charities should spend more on overhead. Overhead costs include important investments charities make to improve their work: investments in training, planning, evaluation, and internal systems—as well as their efforts to raise money so they can operate their programs.

For a variety of reasons (explained well here by Imagine Canada, and here by CCVO’s own Katherine van Kooy), the charitable sector has had an uneasy relationship with charity-ranking organizations. So it is encouraging to learn that some of them have begun to reconsider the practice of applying a simplistic and misleading measure to such a disparate collection of organizations. This is not to say we shouldn’t expect charities to be transparent and accountable, but it’s important that we don’t let ourselves be fooled into thinking that there is a one-size-fits-all metric that can make our decisions for us.

So what questions should a donor ask before giving to a charity? Imagine Canada’s Guide to Giving, is a good place to start for those deciding which charities to support. It is also a great resource for charities to review periodically, so they can provide potential donors with meaningful information to support their decisions – information about their mandate, their successes and challenges, their outcomes and impact. In the end, there’s probably no better way to decide whether to support a charity, than a conversation with that charity.